In Minutes, Fed Talks of Maintaining Discipline

Published: December 17, 2004

Federal Reserve policy makers wrestled with the best way to foreshadow the course of short-term interest rates at their November meeting, according to minutes released Thursday.

After each meeting of the Federal Open Market Committee, which sets policy, members release a brief statement on their interest rate decision and their thoughts on economic conditions, which are analyzed by investors for insight into the Fed's next monetary policy move. The minutes of each meeting are made public about six weeks later.

In November, some members said decisions on interest rates would probably become increasingly dependent on what economic data said about the prospects for economic activity and inflation, the minutes said.

''This might imply a more gradual path of tightening going forward than that of the last several months, or it might mean that the committee on occasion would need to firm policy more rapidly,'' the minutes said.

At that November meeting, as well as at the committee's meeting on Tuesday, the Fed chose to stick with its gradual approach to raising rates.

At both meetings, the Fed decided to increase a crucial short-term interest rate by a quarter percentage point. Tuesday's rate increase was the fifth this year. It left the federal funds rate at 2.25 percent. Early this year it stood at a 46-year low of 1 percent before the Fed began its string of rate increases in June.

The funds rate, the interest that banks charge each other on overnight loans, is the Fed's main tool for influencing economic activity in the United States. At the November meeting, Fed policy makers offered mixed opinions on the extent to which their ideas about the course of future monetary policy should be communicated to the public.

''A few members felt that because of greater uncertainties, it might become appropriate eventually to move away from the recent practice of providing guidance about the likely future path of policy, while others emphasized the desirability of continuing to be as informative as possible about the committee's perceived outlook,'' the minutes said.

In the end, most members at the November meeting agreed that the language in the post-meeting statement provided ''considerable flexibility with regard to the committee's future actions and that market participants understood that flexibility.''